Sri Lanka is in the midst of much economic turmoil. Not long ago, it was South Asia’s fastest growing economy with the highest per capita income.
However, a combination of populist tax cuts which halved the value added tax rate just before the pandemic, heavy borrowing for two decades, pandemic impact on tourism and a rash decision to go organic overnight has led it to its current state.
If we look at Bhutan we face similar issues. Our tourism industry which like Sri Lanka is the main source of convertible currency has been shut for two years. We have a huge debt, which is mainly in hydropower, but our non-hydro debt is growing.
We also had tax cuts in early 2020 before the pandemic hit that reduced corporate taxes and other taxes.
However, we are not in the same boat as Sri Lanka due to our judicious ways so far, however, there are two risks to look at.
The first risk is that the current government borrowing heavily and spending heavily in its last year to make up for the last two years. If these investments are not made in areas that give us good returns, then we could start heading into trouble.
However, the second and bigger risk is that as elections approach in a year’s time political parties could make very populist pledges which can push Bhutan into the Sri Lanka path.
Bhutan, despite being a LDC country, has avoided any major financial crisis due to the good leadership of our Kings who have ensured that the country lived within its means and invested wisely for the future.
This has been undone to a certain extent by the ambitious pledges of political parties who have become more populist with each election.
We will need to guard against this as a nation and people, and political parties must also be responsible.
“We’re not very good when we’re spending other people’s money.”